Nikolai Ray is the founder and CEO of the MREX, creating marketplaces for multifamily markets and secondaries market for real estate. Nikolai discusses with Rand Partners how people overemphasize cap rates in value-add deals.
- Cap rate is the annualized return on investment if you purchased a property all cash
- The problem with focusing on cap rates with value add deals is that:
- Debt is used to purchase real estate (leverage)
- Cash flows aren’t stabilized, but cap rates are based on annualized cash flows
- Don’t look at averages of exit cap rate, look at ranges
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